BofA’s Hartnett says concentrated U.S. stock returns are likely to persist
Canadian Dollar, USD/CAD Key Points
- Traders are highly confident that the FOMC will cut interest rates by 25bps when it next meets…in 6+ weeks
- ISM Services PMI sees falling employment and surging prices, hinting at stagflationary risks in the US economy.
- USD/CAD’s near-term technical bias remains modestly bullish as long as the 1.3775 level holds – see the key levels to watch below!
The US Dollar saw a sharp reversal against all of its major rivals on Friday after the monthly NFP report showed a disappointing 73K net new jobs were created in July (and, more to the point, more than a quarter-million jobs were revised off the prior two months’ reports).
Over the weekend, multiple Federal Reserve members chimed in, signaling they were warming to the idea of a September rate cut, a development that the market is already discounting as 90% likely per CME FedWatch:
Source: CME FedWatch
While it’s not quite a “done deal” yet, traders are highly confident that the FOMC will cut interest rates by 25bps when it next meets…in 6+ weeks. So what’s next the next thing for forex traders to watch?
For one, readers should continue to monitor US economic data to see if the US economy is deteriorating more aggressively than assumed or whether the damage may be less than feared after the NFP release. In that vein, this morning’s just-released ISM Service PMI survey came in at 50.1, below economists’ estimates for a 51.5 reading.
Crucially, the Employment subcomponent of the report fell to 46.4, indicating meaningful contraction in the services sector, and prices increased to 69.9, hinting at stagflationary risks in the US economy.
The other developments to watch will come from abroad. On that front, Friday’s Canadian jobs report could be a major catalyst for USD/CAD in particular. Markets are currently pricing in about a 1-in-4 chance that the Bank of Canada cuts interest rates at its next meeting and about a 70% chance of a rate cut by the end of the year. Much like we saw with last week’s US jobs report, a big miss relative to expectations could pull forward expectations of easing from the BOC and drive the Loonie lower.
Canadian Dollar Technical Analysis: USD/CAD Daily Chart
Source: StoneX, TradingView
From a technical perspective, USD/CAD is testing an key level as we go to press. The North American pair broke out to multi-month highs above resistance at 1.3775 midway through last week and is now testing that previous-resistance-turned-support level from the topside.
Moving forward, the near-term technical bias remains modestly bullish as long as the 1.3775 level holds, with a potential break above the 100-day MA near 1.3850 clearing the way for an extension toward 1.40. Meanwhile, a break below the 1.3775 level (possibly on the back of a stronger-than-anticipated Canadian jobs report) would tilt the near-term odds back to the downside for a move back toward the midpoint of the June-July range near 1.3700.